Collapsing Housing Market Is Taking an Emotional Toll

By ERIC SCHMITT

Published: April 13, 1990

Across the metropolitan region, thousands of people who bought homes during the long housing boom of the 1980's are suffering wrenching emotional and financial hardships as the value of their single largest investment slips away.

Signs of distress can be seen across New Jersey, Connecticut, the mid-Hudson area and on Long Island. Housing foreclosures, delinquent mortgage payments and personal bankruptcy filings are rising.

As a result of financial pressures caused largely by high housing costs, corporate employee-assistance programs report record numbers of workers seeking emotional and financial counseling. Psychologists and social workers say they are treating more cases of stress, depression, spouse and child abuse and marital strife.

''All of us were brought up to believe that if you saved enough money to buy a house, your economic future was secure,'' said Dr. Richard Friedman, a psychologist at the State University of New York at Stony Brook who specializes in stress management. ''Each year, as you paid off the mortgage, the value of the house went up.

''Now, for the first time in 45 years, people who have put their life savings into what they thought was a rock-solid situation are losing money,'' he said. ''This has caused unmitigated anguish. Some people are on the verge of panic.''

'Operating on the Edge'

In large measure, the problems stem from the region's weakened economy. Slow job growth has curbed the demand for housing and depressed prices. Homeowners who bought at the market's peak, betting that prices would continue rising, now watch the value of their houses erode as property taxes and other housing costs continue to climb.

And with the effects of corporate restructurings and a shrinking Wall Street still resounding throughout the region, workers have entered an era when job security has all but vanished.

''A lot of people are operating on the edge,'' said Tony Maccarini, a real-estate lawyer in Carmel, N.Y. ''They're having trouble making their mortgage payments. They're maxed out on their credit cards. They're very nervous.''

The pressures appear to be felt most acutely in the suburbs, but owners of condominiums and cooperatives in New York City have also been hit by the one-two punch of falling real-estate values and soaring costs.

People who bought their homes before the boom began are still, of course, living in houses worth much more than they paid for them.

The homeowners hardest hit are those who bought their property from about 1983 through early 1988, when prices rose by as much as 2 to 3 percent a month in the hottest markets.

'We Feel Trapped' By Debt on Home The median price of a single-family house in the region jumped to $183,800 in 1988 from $88,900 in 1983, according to the National Association of Realtors.

Many two-income families borrowed heavily, spending 40 percent to 50 percent of their income on down payments and mortgages, banking on the seemingly endless rise of real-estate values.

Banks generally will not approve a mortgage if a household's monthly housing costs exceed 28 percent of its monthly income. But many waive that requirement if buyers make a down payment of 20 percent or more, figuring that the buyer has too much invested to default on the loan.

In addition, changes in the Federal income-tax law encouraged homeowners to assume more debt in the form of home-equity loans. These loans, or second mortgages, allowed homeowners to borrow against their home's escalating equity and deduct the interest payments from their income.

But for many families the debt burden became too much.

When Mary Anne and Larry Liesner bought a three-story colonial in Bridgeport, Conn., in 1986, they had big plans. Real-estate prices were rocketing; the Liesners figured they would renovate the 75-year-old house, sell it in four years, buy a sailboat with the proceeds and cruise the Caribbean.

Four years have passed but things have not worked out as planned. Mrs. Liesner lost her job as a restaurant manager, and Mr. Liesner lost his as a mechanic. They found other work, but earn $500 a week less than before. To save money, they stopped taking vacations and going out to dinner. But it has not been enough to keep from falling two months behind on their house payments, which increased to $2,000 a month this year from $1,400 a month in 1986.

The rudest shock came when the couple finally tried to sell: The house they bought in the boom years for $152,000 attracted only one offer, for $115,000.

''We feel trapped,'' said Mr. Liesner, who is 41 years old. ''This house consumes every dollar we make. It's a beautiful home, but it's also a huge financial burden.''

Like many other first-time home buyers, the Liesners chose a variable-rate mortgage with a low initial interest rate. In four years, the couple's mortgage rate has increased to 12 percent annually from 7.75 percent, a difference of $325 a month for them. In addition, they have to pay back a $50,000 loan they took to cover the down payment and renovation costs.